Throughout the week, the global market adopted a cautious stance in anticipation of pivotal meetings with the apex banks, namely the Federal Reserve (FED) and the Bank of England (BoE). During the FED meeting on Wednesday, it was resolved to maintain the current interest rates for the month of September, resulting in policy rates remaining in the range of 5.25% to 5.50%. The FED indicated a potential increase in November, although the exact trajectory remains uncertain. This decision aligned with market expectations. However, there was a surprising departure from the anticipated dovish stance, as the FED displayed a more hawkish posture. Chair Powell, heading the FED, also conveyed the intention to keep rates elevated, with Fed officials now envisioning this stance persisting well into 2024. They anticipate only two interest rate cuts next year, a reduction from the four cuts projected in June. Subsequently, both the US equities market and US Treasury yields experienced a decline in prices. The 10-year benchmark rate concluded the day at 4.43%, marking a 0.10% increase from the prior week, while the Nasdaq observed a 2.41% week-on-week decline.
Similarly, the Bank of England (BoE) announced its decision to maintain the policy rate at 5.25% following the September policy meeting, contrary to market expectations of a 25 basis points increase to 5.5%. The committee cited factors such as a decrease in inflation, the likelihood of a sustained downtrend, a more relaxed labor market, August Consumer Price Index (CPI) readings, a decline in business sentiment, and a drop in August services CPI as rationale for the hold. According to Reuters’ estimations, the market now prices in a 64% likelihood of the BoE raising the policy rate by 25 bps in November, down from the 81% probability prior to the rate announcement. Additionally, investors currently project a 55% probability that the BoE will decrease the policy rate to 5% in September 2024. The Monetary Policy Committee (MPC) also voted in favor of reducing the stock of gilts by 100 billion GBP over the course of 12 months, commencing in October. Consequently, the British pound has exhibited a continued weakening trend against major currencies.
In the domestic market, On Friday, September 22, 2023, Dr. Olayemi Michael Cardoso formally assumed the role of Acting Governor of the Central Bank of Nigeria (CBN), following his recent nomination by President Bola Ahmed Tinubu. This appointment is pending confirmation by the Senate. This transition comes in the wake of the resignation of Mr. Godwin Emefiele as Governor of the CBN. Likewise, the Deputy-Governors-Designate have also taken on their roles in acting capacities, following the formal resignation of Mr. Folashodun Shonubi, Mrs. Aishah Ahmad, Mr. Edward Lametek Adamu, and Dr. Kingsley Obiora as Deputy Governors of the CBN. Dr. Cardoso and his colleagues undertook their respective oaths of office during a brief ceremony held at the Bank’s Head Office in Abuja in September 2023, and have since assumed their responsibilities in administering monetary and financial sector policies for the Federal Government.
Money Market
Seeing the rebound in system liquidity from negative terrain to ₦65.64 billion, stemming from SURE P payments disbursed to various states through the Apex Bank and coupon payments, interbank rates experienced a significant decline. Consequently, the Open Buy Back rate (OBB) dropped by 2106bps week-on-week to 2.58%. Simultaneously, the Overnight rate (O/N) declined 2112bps to 3.30%.
We expect further moderation in rates due to the coupon inflows.
Treasury Bills
The Treasury Bills Market traded on mixed sentiments in the week under review with liquidity fluctuations. The Focus was on the long end of the curve, particularly the August and September bills. For emphasis, the 5-Sept-24 bill was bid at 11.70% while offers stayed at 11.40%. Week-on-week, the average benchmark yield rose 55bps to 7.42%.
We expect a calm session ahead of the PMA slated for Wednesday.
FGN Bond Market
The FGN Bonds market traded on a calm note with a bullish undertone as demand was skewed to the short end of the curve while the long end remained muted. The 2029 bond remained in demand, bid at 14.44% and offers at 14.33%. The 2032 maturity was quite offered today at 14.85% while bids were scarce.
Notably, the Central Bank of Nigeria issued an announcement regarding the postponement of the MPC meeting initially slated for the 25th and 26th of this month, with a forthcoming date to be communicated. Week-on-week, the average benchmark yield rose 1bp to 14.65%.
We expect a similar trend in the next trading session.
Eurobond Market
The FGN Eurobond market displayed bullish sentiments as news of the newly appointed CBN Governor, Mr. Michael Cardoso remains positive news for the country in combination with the likelihood that the FEDs keep rates unchanged at the FOMC meeting. However, there was a reversal of this trend in response to the FEDs indication that rates need to stay higher for longer, despite holding rates steady this month as expected. Week-on-week, the average benchmark yield rose 23bps to 11.33%.
We expect the negative momentum to persist, barring any significant events.
Currency Market
The value of the Naira to the dollar strengthened by 121bps week-on-week to print at ₦747.76/$ this week at the Investors and Exporters FX Window.
Equities Market
The local equity market exhibited a bullish trend over two of the past five consecutive trading days. Alas, the bears emerged triumphant this week, asserting their dominance, leading to a 139bps decrease in the NGX All-Share Index (NGXASI) on a day-on-day basis and an overall weekly decline of 11bps, closing at 67,324.59 points. This decline was mainly driven by increased selling activity in OANDO, which had been on a nine-session winning streak, as well as banking giants like GTCO and STERLINGNG, along with the industrial goods company DANGCEM. Fortunately, the year-to-date return remained positive, expanding by 31.36% while market capitalization declined to ₦36.85 trillion. Despite the negative market performance, the market breadth stood at 1.13x, indicating that there were 44 declining stocks compared to 39 advancing ones.
Delving into trade metrics, the total trading volume saw an impressive 151.53% expansion to 1.03 billion units while the total value traded down 16.79% to ₦4.35 billion. When analyzing the week-on-week performance, the stocks with the highest trading volumes included UNIVINSURE (1.66 billion units), UBA (254.35 million units), and ACCESSCORP (169.49 million units), while the top performers in terms of trading value were UBA (₦4.46 billion), AIRTELAFRI (₦2.99 billion), and ACCESSCORP (₦2.92 billion). On the other side of the ledger, when appraising in terms of value, UBA took the center stage with an impressive ₦4.46 billion, followed closely by AIRTELAFRI at ₦2.99 billion, and ACCESSCORP at ₦2.92 billion.
We expect a calm start to the week.
